On-Track Construction and Improved Economics at Highly Attractive Project

CIBC raised its target price on this Canadian company and provided an update on its anticipated mine.

In a Sept. 19 research note, CIBC analyst Bryce Adams reported that Lundin Gold Inc. (LUG:TSX) updated its forecasted economics on Fruta del Norte in southeast Ecuador, and remains on track and on budget with construction there.

CIBC revised its model to reflect the changes and, consequently, raised its target price on Lundin to CA$6 per share from CA$5.50. The mining company’s stock is currently trading at CA$4.91 per share. “At spot prices, Lundin Gold now trades in line with its developer peers at 0.9x price:net present value 5% (NPV5%),” Adams noted.

As for the adjusted project economics, Lundin’s new NPV5% for Fruta del Norte is $786 million. This 10% increase is driven by the company’s use of primary and secondary stopes rather than end slicing stoping. The approach allows for greater operating flexibility and a lower backfill expense.

Regarding projected costs, Lundin has reduced them in light of optimized mining methods and reduction in estimated use of reagents. Operating costs dropped 7% to $537 per ounce, and all-in sustaining cost (AISC) dropped 4% to $583 per ounce. “Lower costs have lowered the cutoff grade and increased the mineable resource slightly,” Adams explained.

With respect to construction at Fruta del Norte, it is more than a quarter done. “Both declines have crossed the Machinaza Fault with no significant water inflows,” wrote Adams. Completed underground development stands at about 2.9 kilometers. Concrete work at the processing plant is about 30% finished.

Because continued construction progress will be Lundin’s main priority for the next 12 to 18 months, CIBC maintains its Neutral rating on the company. “Longer term, we view Fruta del Norte as a highly attractive project, as one of the highest-grade, undeveloped gold projects globally,” Adams concluded.

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Disclosures from CIBC, Lundin Gold Inc., September 19, 2018

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Important Disclosure Footnotes for Lundin Gold Inc. (LUG)

· CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Lundin Gold Inc. in the next 3 months.


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